A Tale Of Two Case Studies: Amazon, Pepsi, and Tangible Intangibles

2009 ended and 2010 began with two huge headlines for the mainstream adoption of Digital and Social Medias, on the back of what I documented last week as what I consider will be looked back on as a landmark case study with Rage Against The Machine’s Christmas Number 1 victory over the X-Factor. I’ll go into some analysis in a moment, but first, here are the headlines:

2009′s end of year news came in the form of the Amazon Kindle e-book reader: on Christmas Day, for the first time ever Amazon sold more e-books for the Kindle than they sold physical books (Amazon.com). Charlie Sorrel, writing in Wired’s article, points out that this surge most likely comes from customers who received the Kindle as a gift, but acknowledges that whilst this doesn’t mean e-books outsold physical books over the Christmas period, “what this still means is that e-books are now mainstream.” Mashable made a similar remark, saying “e-book sales still pale in comparison to the countless paper books that were sold this Christmas season. We do have to give credit where it is due, though; it is another milestone for the constantly-growing e-commerce giant.”

2010 began with news surrounding the event that attracts the largest advertising budgets in the world: The Super Bowl. Namely, that Pepsi has decided to invest the $20 million earmarked for the Super Bowl instead into Social Media (ABC News). This is tantamount to saying that Pepsi sees more value in Social Media than one Super Bowl event, and whilst sure, Social Media has more longevity and legacy over a year campaign (especially with a $20 million spend) versus a few minutes of advertising, Super Bowl is a time-honoured tradition that Pepsi (and other superbrands) has been keeping for 23 years, and is the most watched televised event in the world.

You know me, and that I don’t want to repeat what’s already been said on these matters. What I do want to do is draw some commonality from these two headlines and draw some conclusions from them. In addition to my own thoughts, I’d recommend you read Augie Ray’s analysis of the Pepsi headline at the Forrester Marketing blog, as it provides further examples of other brands following suit.

Case 1: What is Real? aka A Problem With Intangibles

When I started reading the articles regarding Amazon’s selling of more Kindle e-books than physical books, I picked up on the something the continual reference to ‘the real world’ as opposed to the internet/digital world/social media. Amazon writes that they sold more Kindle books than “physical books”, but every other article that quotes them on the subject says “more kindle books than real books.” This translation from physical to real highlights one of the biggest barriers to generating revenue through digital media – that the perception is if physical equates to real, then non-phyiscal equates to non-real.

I’ve taken a bit of a jump there, but I believe it’s a right one. For most people, it’s ‘digital books or real books’, as it is ‘digital life or real life.’

So inherently, the problem is not only that digital goods are intangible, and therefore I feel like I’m paying for very little – people also believe, some-what subconsciously I expect, that digital goods are not real. I’m not going to get into whether this is correct or not, nor look at the ideas of augmented reality and the such and whether a ‘book’ is a ‘book’ even when it’s not bound like a book – I just think it’s a very practical way to get into the mindset of a early majority customer: imagine you’re buying something that isn’t real and tell me how you feel.

How do we overcome this? I’ll be honest with you, my expertise is in getting people together, so when it comes to selling products, I’ve got more questions than answers. There was a big discussion on this recently regarding the $47 ‘Beyond Blogging’ e-book, the comments on my friend Jim Connolly’s Ideas Blog being very interesting. This talk of charging more for intangibles over tangibles is a bit of a deal, and this is where I really do want to hear back from you! My thoughts on it are as follows:

I think education will take place, over time, and people will value intangible goods more (like they are starting to with music and video on iTunes) over time. iTunes is actually a great case study to consider – it provides a way to catalogue and ‘see’ your digital goods, creating a sense of tangibly owning them – (Coverflow, anyone?) This is despite the fact that iTunes is itself an intangible, digital product, used to purchase more intangible digital products. It has taken them all of last decade to chip away at the mindset, but now the mainstream is completely au fait with purchasing intangibles from them. Given that the Kindle is the tangible item that is used to purchase, archive, and access the intangible goods, then we have a way forward. And yes, the mainstream is au fait with purchasing digital goods from iTunes, according to these statistics.

What I am certain about is that loosely and independently downloadable files (like buying a ebook in PDF from someone’s website, via a redirect from PayPal) will simply not work with the mainstream. It’s not a tangible intangible. It’s not filed (customer: ‘where is my ebook now that I’ve downloaded it???’). It’s not carried out through a trusted channel. In other words, it’s not like the Kindle or iTunes. Like I’ve said above, iTunes and the Kindle make the intangible tangible, or as per my original point, make the non-real, real.

And yes, I know that the innovators and early adopters are happy to purchase e-books direct from sites – but think mainstream with me, because that’s where most people live. If I use my wife as an example, she’ll happily buy through Amazon or iTunes because she trusts it and it keeps her purchases together. She doesn’t just buy files from sites.

One way that I’ll be applying this for my clients is when it comes to book publishing. I have good contacts in a few publishing houses, who I’ll approach with the following proposal: print a small run of physical books, and make a digital version. Put both on Amazon, and only spend marketing budget on getting the physical book placement in very targetted locations. My agency then does it’s Social Media magic to promote e-book sales on the Kindle (with a physical version there too, available on demand after the initial availability is gone.) This gives the author stature, and access to a tangible platform for their intangible product, at a very low cost.

[On a side note, this also means the publishing house has very little risk, very little spend, very little work, gets a free Social Media campaign testbed (because hey, I’ll be pushing the book anyway), and if it works, gets a Social Media case study to take to the board. In return, I get published without going down the costly self-publishing route. I think this’ll work – I’ll let you know when I try it.]

Case 2: Brand Association and Social Media, aka It Doesn’t Work Without Purpose

We’ll discuss that tomorrow. Tomorrow, dear friends, tomorrow. Until then, do you want to discuss tangible intangibles with me?

Archived Comments

http://twitter.com/greenlandstudio michael greenland

Great post Scott.

In terms of selling the ‘Intangible’ – or ‘Digital Tangibles’ – I think the real reason why itunes and has become a trusted source (and later, Amazon with Kindle) is down to the benefits of the digital experience. And this is down to a well created ‘user experience’.

If we consider taking ‘Physical’ music with us on the Train, for example – forget formats – we’d have to take the entire band with us, instruments and all. And that’s not easy. To carry 20 days worth of music with us, we’d need lots of bands, supplies, etc. You get the drift.

So, roll on lots of portable music formats later, and we have itunes + ipod. This ‘user experience’ was created nearly a decade ago – back then, the benefits of using the ipod + itunes were sold to users as ‘1,000 songs in your pocket’. At the time, digital downloads were unavailable (except for Napster of course) and mostly the process involved downloading the tracks from CD’s. Suddenly, you could have a large portion of your music library in your pocket.

Apple were late to the party. But in their normal way, they just made the process of using digital music, of experiencing digital music – better. And it’s because the process, the experience, is better – we trust it. So, our experience is better.

In Product Design circles, we describe the difference between designing for physical products as ‘Hard’, and for designing digital, non-physical products as ‘Soft’. Sometimes, our work combines the two (Hard/Soft). The interesting part here – is that good product designers don’t blur the boundaries, but always ‘design the experience of using the product – not the product itself’.

In terms of reading, paper books have had the best user experience (up to the Kindle) because they are portable, are easy to use, and are cost effective. So, the aim for the Kindle was to make the experience of reading – better. In other words – the Intangible (the fact it lacks physical mass) is replaced by the enhanced user experience. Therefore, the Tangible is that enhanced user experience. ‘20,000 books in your pocket’. ‘digital bookmarking’. ‘Easy to purchase new books’.

An it’s the lack of user experience that stops us (generally) paying for PDF’s as books. The experience of using the PDF is less good than using the ‘real’ book. It’s less portable (even though it can be read on a myriad of devices), and it doesn’t feel ‘real’. That’s because the PDF doesn’t work like a real book.

There are three stories here for me.

1: Amazon are repeating the success of the original itunes + ipod.

2: The about to be announced ‘Apple islate’ will open up itunes as a bookstore that will eclipse the user experience of the Kindle (as well as many other functions, ipod, browser, etc).

3: Adobe missed the boat by not creating a holistic user experience for reading PDF’s with a partner, even though the PDF is a great tool.

Interesting…

And coming back to itunes, and your framework Scott. As we all know, itunes is a free download. It can be used on PC and Mac. There are a myriad of ipods to choose from, from the cheap ‘shuffle’ right through to the iphone. And the experience of using these devices is simple. Well, there’s a whole load of spreadability right there. itunes is a great model for all of use to follow.

http://www.davidandcharles.co.uk/ James Woollam

Interesting post Scott, and one that plays to the heart of challenges facing publishing as the industry embraces the digital opportunity. I work for a publishing business and these issues are very front of mind for us. So much so, in fact, that we’re leading this event (http://www.digitalbookworld.com/) later in January.

Our interest is specifically in non-fiction publishing and I believe there is great opportunity in the digital environment to create a new type of ‘book’ product as you are no longer constrained by the timing challenges and limitations of the physical book. Take photography books as an example. It’s difficult to publish into this category without the book quickly dating, but a digital book could update periodically with new content while still retain the authority of an author/publisher as a USP.

So, while I agree that there is a perception issue here I believe we need to treat digital books as a different type of product and present them accordingly. Granted this is easier in non-fiction, but even in fiction this could work. Think about a book where the reader makes choices on the plot, can explore more of a particular sub-element of the story or character or even a never ending book that simply updates and updates – one purchase for a whole series?

One other challenge for you to consider in your suggestion to publishing houses is that much of the cost in creating a new book is attached to creating the content rather than printing the book. So while there is cost attached to printing, there is still risk to a publisher whatever format route you take.

It’s a fascinating time for the publishing industry and new digital opportunities emerge daily. The debate on pricing, format, devices, product mix and the future of the ‘book’ will be interesting to watch through 2010.

(On a side note Scott, we should catch up – our UK operation is only down the road from you in Newton Abbot!)

Scott Gould

Michael – very indepth comment – thank you for the detail.

This is what perhaps should become another post – on the subject of rich digital experience. I think I’ve stumbled onto something, which is that a rich digital experience makes intangibles tangible.

Your addition 3 points are what I really should’ve been writing about. I think there’s enough mileage here to do another post on the subject of digital experience, looking at iTunes, Amazon and others.

http://twitter.com/MHowitt Martin Howitt

Michael, you seem to be saying that (iPod + iTunes) or (Kindle + eBook) is not really selling an intangible: it is selling a tangible item with intangible extensions.
This is a bit like the Playstation (or other games console). The thing is useless on its own but you can buy the games to play on it. It then becomes a platform.

I think the future belongs to the platform with the best overall spreadability. I also think that we’ll either see a convergence onto one platform (via network effects) or a convergence onto a small set of open standards that allow platform portability (so I can play Duke Nukem forever on the train in between phone calls, reading chapters in my ebook, turning the heating up at home, contacting friends via social media etc).

also agree that the Apple e-book reader is likely to eclipse the Kindle experience. There’s a vast untapped creative space behind e-books that hasn’t been considered yet: the Kindle is just books, but on a computing device. I expect “books” for the islate to be more like a full-blown multimedia experience.

Scott Gould

James – many thanks for the comment.

I do agree that, given the product is intangible, there are incredible options for updating, adapting, etc. The idea of having a photography book which is updated continually is incredible and I think is what we’ll move towards.

This certainly presents plenty of opportunity – especially when the version of the book that the customer buys continually updates itself.

As for the risk for publishers – you being a publisher, you know more than me – but I would imagine in the scenario I painted, there is at least a significant reduction in the risk for the publishers?

(Yes I’d love to catch up – very much so. Email me using the form at the bottom of the page and lets meet!)

http://twitter.com/chrish10 chris hall

Scott, fascinating stuff. It’s an article and a viewpoint to which almost everyone understands. That is that we fear the intangible simply because we’re brought up to expect that when you purchase something it ends up in your hand. This will of course change. Previous arguments would go along the lines of ‘books (real) will always be with us because you can’t take your computer to the toilet…ebooks turn up and BANG!

I have no problem with it, in fact having hundreds of albums on my iphone is literally music to my ears, but many want to flick those sleeve notes through their fingers. I want instant access to any tune I want and where I want. So does everyone else… but the nostalgia and the fear of loss of value due to the intangibility still lingers.

I know you know this, but the debate mirrors how people view social media [marketing] to traditional marketing. The answer is the same for both: all types will show significant benefits if they work together. A marketing campaign using all strands of the marketing mix will prove many times more successful, the same as the ebook and the hardcopy example you give.

What is clear is that each individual can choose. I love the digital world and all it brings; my son loves to buy music from HMV as much as he loves it all on his ipod. My wife still wants to grab the tangible.

But I know lots and lots of people who still use the high street to view the item they may want, try it on, play with it, test it etc then go online, find the lowest cost and order. Two worlds working together but only one winning.

Interesting times for the revolution. But exciting ones!

http://www.mikeslife.org Mike CJ

Fascinating post – I’m one of the authors of Beyond Blogging, which you refer to, and I had never thought the whole tangible / intangible thing through, but you’re absolutely right! What we need is some kind on platform / library like iTunes for our online books – I guess Audible has already done it for audio books.

Having said that, will Kindle do the job for us, I wonder? Oh, and the Kindle version of the book is about to launch over the next couple of days.

Scott Gould

Martin – some great thoughts there – I’ll just hone in on the one that takes my interest the most:

“I think the future belongs to the platform with the best overall spreadability.”

Spreadability. Yeah, that’s what I’m talking about. A single, loose download on a site has no spreadability. An ebook thats in iTunes has plenty of it.

Then that brings the other thing, as you say, that books will become full blown multimedia experiences. Now *that* is fascinating – although it will turn the cost of a book up dramatically!

Scott Gould

Hey Chris – thanks for the comments. I think you sum up when the mainstream is at the moment – they are happy with tangible intangibles through iPod, iTunes, and enjoy the lifting of restrictions that they bring.

Your point, then, of providing a tangible touch point – like using the high street to preview an item – is a very strong one, and one that demands attention. Hence, I think a good bit of budget is then spent (in the instance of books) on book placement in key locations.

Scott Gould

Hey Mike – yes I followed the conversations on your book keenly around the web. I think the uproar really is misplaced, and in my mind, the more important discussion is along these lines of tangibility with digital products.

Congrats on the Kindle launch – I’d love to do a case study on your book perhaps at the end of January?

annholman

Fabulous post Scott and personally it’s very timely! I’m fascinated by the need to encourage a culture of tangibility with digital products. If that doesn’t happen, many of us have problems. Only when we make things tangible will people pay and feel value. That feeling will increasingly be about tapping into peoples emotions rather than handing them a physical product as has been mentioned.

I agree fundamentally with Michael Greenland’s point about this being about the digital experience and more importantly the ‘user experience’ to quote his term. We have to be careful here though that we don’t create products/services that are about as useful as one telephone in the world.

All I have got to say is forget about ‘location, location, location’ its about building ‘experience, experience, experience.’ That’s what will make it tangible!

Cheers Scott for another thought provoking post!

Scott Gould

Yes it is timely! Like I said to you when we met a while ago, this is the underlying issue of problems with just displaying lots of ebooks on a website and then not really getting the sales you want. I think it goes to a lack of strong distribution as well – which a tangible product can provide solutions for – so we need to think deeper about this.

I love your final line on ‘experience, experience, experience’ – after being criticised for using the language, it’s great to see it being used a lot more! I’ll write a blog post on it methinks!

I love this kind of thinking Scott and you make a good point there. Do you also realize that you pay for your intangible product with intangible money: with a cardboard card with a specific number on it, which stands for money in a bank, but that money does not physically exist. Considering the intangible digital product: This has one very big advantage. Looking at my CD and DVD collection, I realize that they will be useless in a couple of years, just like the box with video tapes and long play records in my garage. The digital products are not completely dependent on the actual technology and hardware. So, when I will be listening to the same music on my future version of the ipod, while throwing my CD´s in the dustbin.

Scott Gould

Very nice addition. The money that we have is very intangible… yet still there is a pinch.